Making tax digital is one of the most significant changes to the tax system since the introduction of self-assessment more than 20 years ago. MTD for VAT was mandated for most VAT registered businesses with a taxable turnover above a £85,000 threshold from 1 April 2019.
We welcome this opportunity to comment on the proposals to extend MTD to corporation tax, and we hope, to collaborate on the detail. Under the proposals, corporation taxpayers will be required from April 2026 to:
- maintain digital records of their income and expenditure;
- provide quarterly updates of income and expenditure to HMRC using MTD compatible software
- file their annual CT return using MTD compatible software.
It is likely that these requirements will lead to all building societies having to make significant and complex changes to their current software and processes. This will have resource implications.
Executed carefully and proportionately there could be gains for both the taxpayer and HMRC. Our concerns lie in quarterly reporting for which we struggle to see the benefit for either the taxpayer or HMRC, the income and expenditure categories which appear not to work well in a financial services business, and the timing.
We understand that HMRC prefers to limit the number of exemptions. So far it has not proposed a separate scheme for financial services. In view of this, we urge HMRC to provide comprehensive interpretation guidance to help financial service businesses like building societies to map across to the standard categories, or to extend those categories to include financial services but within the same framework.
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